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World Bank Moves to Help Leasing Companies in Central Africa

In most African countries, small and medium-sized enterprises do not have the option of leasing expensive buildings or equipment. Development experts say appropriate legislation encouraging leasing could boost the private sector in Africa. Now the World Bank through the International Finance Corporation is working to introduce the concept in Cameroon and Central Africa. Voice of America English to Africa Service's Divine Ntaryike in Douala, Cameroon, reports that development experts say businesses that lease property and equipment in Cameroon could earn about $800 million (US) annually.

But today the few leasing companies that do exist earn only about 10 percent of that amount. The situation stands in contrast to countries like Tunisia, where leasing earns up to $700 million per year -- or Ghana, where it earns nearly $110 million.

Experts blame the anemic state of the leasing sector in Cameroon on the absence of appropriate legislation, difficult access to sources of financing and a failure to promote the concept.

To change the situation, the International Finance Corporation (IFC) has taken up development of the sector in Cameroon and Central Africa. The IFC is an arm of the World Bank. It's working with bankers and officials of the countries' ministries of finance and justice to develop legislation to create the legal and fiscal frameworks.

Riadh Naouar is the program manager of the IFC's Africa Leasing Facility. He says the plan will spur business activity in the region:

"We started by implementing four programs -- in Madagascar, Tanzania, Rwanda and Ghana -- and because of the success of these programs we want to replicate the model in Francophone countries. We are convinced that leasing is one of the best financial solutions to help small and medium enterprises gain access to equipment. The first objective is to implement a favourable legal system. We think that Cameroon is one of the most potential leasing markets."

Naouar says the IFC will first lobby the government to adopt the legislation. If it succeeds, it will encourage local and foreign business people to invest in Cameroon. And it will provide investors with credit lines and guarantees at local banks.

But challenges remain. The IFC says nearly all small and medium-sized enterprises in Cameroon are informal or not officially registered. It notes that repossessing leased property is a major problem for the few existing leasing companies.

Attorney Paul Jing is counsel for international investment banks and foreign lenders.

He says, "The thing is that a lot of lenders do not do prior research on the borrower, the know-your-customer process. If you don't do that then you are taking a very high risk. You see a lot of people complaining that the judicial process is slow. It's because some of these debtors are of extremely bad faith. They don't honor their engagements. And you know our judiciary is corrupt, so they take recourse to the judiciary and pay judges and end up not paying. A lot of leasing companies may even go [bankrupt] because of that."

But Paul Jing is optimistic. He says leasing legislation and workshops to educate potential leasing businesses should alleviate concerns about investing in the sector.